Detroit: What Went Wrong, What's Next

A look at what led to the city's landmark bankruptcy filing

(Newser)
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Detroit's bankruptcy may not have surprised many people—"this has been coming for ages," one pained city worker tells the New York Times—but it does have everyone talking. What went wrong? What happens next? We're glad you asked.

What happened:

Much of the problem stems from the decline in the auto industry, which, according to The Week's timeline, began in the '70s, when the gas crisis spurred interest in more efficient imports. But things really sped up around 2000. Since then...

Unemployment has tripled, peaking at almost 28% in 2009. Today it's at about 16%.

Crime has spiked, with homicide rates now at historic highs, USA Today reports. Police take an average of 58 minutes to respond to calls.

Many residents, particularly middle class ones, have fled in response; the city's population has dropped 25% since 2000. That exodus has left 78,000 city structures abandoned.

All of which has led to a 30% plunge in tax revenue over a decade.

That's made city services even worse. "There’s no way Detroit can afford to service 140 square miles anymore," economist Eric Scorsone tells NBC News. "So for parts of the city if your streetlight’s out, they’re not going to fix it." Indeed, 40% of the city's streetlights don't work.

And hanging over the city are massive unfunded pension obligations, currently totaling $18 billion, or $25,000 for every resident. The city's top two creditors are its General Retirement System and Police and Fire Retirement System, the Detroit Free Press reports.

What's next:

City officials have insisted that day-to-day city business will go on unimpeded; they're free to use their cash on hand to fund public works.

Detroit will get an automatic stay on all its bills and all lawsuits against it, though it'll still have to pay secured creditors, according to USA Today.

A judge will have to agree that things are bad enough to warrant bankruptcy. Assuming that happens, the city will craft a reorganization plan, hopefully with the support of creditors.

That will surely involve cuts to pensions, something the unions are staunchly against.

Whatever happens will be watched closely. "Everyone will say, 'Oh well, it's Detroit,'" Scorsone says. But "it's the same in Chicago and New York and San Diego and San Jose. … They may not be as extreme as Detroit, but a lot of them face the same problems."

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